US-China Commission Report - Fatal System Error

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barriers, opaque and inconsistently applied legal provisions, and
limitations on foreign direct investment often combine to make it
difficult for foreign firms to operate in China. 82 In addition, some
ministries, agencies, and government-sponsored trade associations
have renewed efforts to erect technical barriers to trade. Meanwhile,
many provincial governments at times have strongly resisted
reforms that would eliminate sheltered markets for local enterprises
or reduce jobs and revenues in their jurisdictions. 83
Lack of effective enforcement of intellectual property rules acts
as a pervasive trade and investment barrier. Foreign creators of intellectual
property lose hundreds of millions of dollars in revenue
as a result of counterfeiting, making it impossible for many of them
to operate profitably in China. Software provides an excellent case
study. Compounding the losses of software companies resulting
from lost sales, other foreign firms in entirely different industries
also suffer as a result of pirated software. Chinese companies using
pirated software spend far less than competitors that must purchase
software to design and run industrial machinery, perform
complex accounting, or accomplish myriad other functions.
The United States has cited China’s restrictions on foreign financial
information services and foreign financial services suppliers in
bringing a complaint before the WTO. In March 2008, the United
States claimed that China violates global trade rules by giving the
Xinhua News Agency the right to issue annual licenses for overseas
media organizations, barring them from directly distributing information
and soliciting subscribers in China. Xinhua was given sole
power in September 2006 to regulate news services that distribute
financial information in China such as Bloomberg and Reuters—
while it also is a direct competitor of such services. 84 Furthermore,
in order to renew their licenses, China requires foreign financial information
suppliers to provide to the Foreign Information Administration
Center, a regulatory body within the Xinhua framework,
detailed and confidential information concerning their financial information
services, their customers, and their foreign suppliers. 85
This places the foreign firms in a position of extreme competitive
disadvantage with Xinhua, which already enjoys a substantial
home court advantage.
Creation of such de jure bottlenecks for financial information allows
China further to tighten media controls in a nation where access
to information already is severely curtailed by state censorship.
Under the Chinese rules, media agencies can sell news and
data to subscribers only via agents designated by Xinhua, which
has the right to select information released by foreign organizations
and to delete any materials that are deemed to undermine
China’s ‘‘social stability,’’ endanger national security, or disrupt the
country’s economic order. In its WTO case, the United States, later
joined by the European Union (EU) and Canada, claims that such
measures breach Chinese pledges on national treatment and market
access. The rules also break commitments China made when
joining the WTO not to scale back existing rights for companies
and to provide regulatory independence. 86 (See chap. 5 for a more
detailed look at China’s restriction of information services.)
In July 2008, China lost its first WTO case after a dispute panel
ruled against Beijing’s import tariffs for car parts. The case,